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Four Questions for Legal Sourcing

THE TRADE ORGANIZATION for legal procurement, Buying Legal Council, recently released the results of its 2018 survey. The study looked at the impact of and value realized by procurement professionals, partnering with law departments to deliver results, evidence of metrics, commitments to improvement and to continuing education.

Some 153 legal procurement specialists completed the survey earlier this year. Many of those involved on a full-time basis with sourcing legal services come from financial institutions, the insurance industry, pharmaceutical companies and global manufacturing. There are others still who specialize in the procurement of professional services such as IT, human resources or management consulting and who support the legal function.

Yet, at least four questions remain for both procurement professionals and their law department clients.

The first is “What is your goal for cost savings as a percentage of total legal spend in 2018?” How does one measure savings? There is good legal spend (transactions) and necessary legal spend (litigation). Are savings determined by the size of the discount, the number of hours worked, total legal expenses, or some combination of each? Do we expect a company’s total legal spend in 2018 to be 16.9 per cent lower than its total legal spend in 2017 – effectively a comparison of absolute expenditures? The next survey should set out a single methodology for participants to use when calculating savings.

The second question asks “From a list of 13, rank the tactics which you are most likely to use to generate savings in 2018?” The Buying Legal Council survey found that the three most effective techniques to deliver value in legal services procurement were “pre-matter scoping” of work, the negotiation of AFAs, and the creation of panels or lists of preferred firms.

I would agree in every respect. However, it is not really possible to use AFAs, except on the most routine matters, without also relying on detailed matter-budgeting by the law department and their law firms as a prerequisite. Procurement and legal professionals should be scoping entire portfolios of legal work with variables that include legal specialization, the number and types of matters together with their complexity levels, and the overall hours anticipated per year for each jurisdiction of interest to the company.

This scope of work should then make its way into RFPs. It then becomes possible to align the financial incentives for the law firm with those of the law department and to do so at a predictable price for all types of work. Failure to do so relegates AFAs and matter scoping to routine work. Serious savings invariably stall for a company after 10 years of RFPs when anchored in some variation of hourly-based fees. The next survey should ask about the extent to which the entire portfolio of legal work is scoped and then sourced on a non-hourly basis.

Our third question – “What are the top three goals for procurement professionals in 2018?” – ranked better capture and analysis of spending data, reduced legal spending, and improved management of legal work. It makes perfect sense that better data capture and analytics be ranked first.

Many companies that have had commercial systems in place for years to receive, analyze and process legal invoices are still missing half of the data. For the most part, they rely on matter management systems that are very precise at spotting unauthorized tasks, hours, rates or fee-earners on bills. They are not used to sort matters by complexity within a specialization, and they are not used to examine and compare law firm staffing profiles and practice patterns against each other and against a standard. Yet, they could be adapted to do so.

Finally, the survey asked for a description of the relationship between legal procurement and internal groups. The report is eloquent about the evolution of collaboration between legal procurement and legal operations. This makes sense from the point of view of data capture, data analysis and the management of legal sourcing processes. I would submit that the selection of firms for critical and sensitive transactions, significant litigation and regulatory work tends to be relationship-based. It is rarely the object of a procurement process.

The next survey would do well to inquire about the extent to which this type of work is incorporated into the sourcing process and whether it is priced on other than an hourly basis. Many hard-won savings in legal procurement are eclipsed by exceptional, expensive “bet-the-company” work.

Richard G. Stock, M.A., FCIS, CMC is a partner with Catalyst Consulting. For law department management advice that works, Richard can be contacted at (416) 367-4447 or at rstock@catalystlegal.com.